Patent Box is often misunderstood but incredibly valuable to any business hoping to apply for, or with existing, patents. Successful application could reduce corporation tax payable to as little as 10%.
The Patent Box legislation was introduced from April 2013 with a view to encouraging UK companies to innovate and stay in the UK, as well as making the UK attractive to international innovators. The legislation is designed to seamlessly integrate with the R&D tax credits legislation. It applies to UK companies with a qualifying patent (does not necessarily have to be in the UK).
The relief can extend to companies that have been granted a licence. It is necessary to calculate the profit stream arising from the patented product or process. This portion of overall profits is taxed at 10%. The patented part of what is being sold can be very small.
For example, if a cartridge was capable of being patented, the entire prof t from the sale of printers it was stored in would be captured. In the first year of operation, 700 companies made a claim, 225 of which were large (just over 32% in number). However, the large companies were responsible for £327.6m of the £343m claimed in total (95.4%). Therefore, the SMEs claimed £15.4m or around £32,000 a claim. The larger companies claimed not far shy of £1.5m each.
Approximately two-thirds of the companies were involved in Manufacturing (£216.9m) followed by IT, Financial Services and Real Estate. In 2015, the figure reached £750m with 2016 seeing a further 17% rise to £875m. This legislation has been very unpopular with some of our EU neighbours, so much so that the legislation was changed, adding a lot of unnecessary red tape.
Brexit should see the Patent Box legislation being greatly improved, something I greatly look forward to. It is difficult to ascertain how much of a mystery the Patent Box legislation is to the market as a whole. My experience with R&D tax credits would suggest wide-scale ignorance, with the possible exception of the really large companies.
The number of patent box claims made against patents filed each year would indicate that perhaps 10% of qualifying companies were making a claim. Aspen Waite are on a mission to not only find profitable businesses with patents but to identify new ideas or improvements that could be patented.
All of our R&D clients will be reviewed, particularly if we believe a successful patent will reduce the future tax burden.
Regardless of what one thinks about Brexit, there is no point doing anything but being positive. Aspen Waite will be playing a full part in ensuring that the UK thrives in the post Brexit world.